Inherited assets: Watch your step

Q. I inherited property from my father who died in August. If I sell it at its current value, will I owe income tax? M.G.C., Jupiter, Fla.

A. Possibly. Under the tax rules in effect for 2010, you can’t benefit from an unlimited “step-up” in basis, as you could under prior law. Instead, you might have to carry over your father’s basis in the property, which could be much lower than the current value. However, there’s an important exception to this “carryover basis” rule. The tax basis of assets transferred to nonspouse beneficiaries can be stepped up by up to $1.3 million in total, and the tax basis of assets transferred to a surviving spouse can be stepped up by up to $4.3 million.

The new limited basis step-up rules are complicated, and the estate’s executor must take action for heirs to benefit. Consult your tax advisor for full details.